Income Tax dept planning to challenge ITAT ruling on ZEE-Sony merger
The Income Tax (IT) department is likely to appeal a court decision that withholds capital gains tax in India on the sale of Ten Sports to Sony Pictures Network India by a Mauritius-based company connected to Filesadmin.co Entertainment Enterprises (ZEE), economic times mentioned.
It added that the capital gains on the sale, which date back to seven years, are around Rs 1,800 crore.
In March, the Income Tax Appeals Tribunal (ITAT) granted ZEE’s petition to recuse, concluding that it lacked a permanent establishment and was therefore not entitled to benefit from the agreement provided by the Double Taxation Avoidance Agreement (DTAA).
It also mentioned that the gains from the transfer of ownership will only be subject to tax in the country of residence of the disposer, which is Mauritius in this case.
Gains of about Rs 1,790 crore “from the sale of sports broadcasts made by a resident person are not taxable in India,” ITAT ruled.
Permanent establishment under IT parlance means presence in the form of a fixed location or service based outside the company’s home country.
Section 260A of the Income Tax Code allows the Department to file an appeal with a superior court in the valuation officer’s territory.
In October 2016, the Deputy Income Tax Commissioner, International Tax Department, Mumbai issued a certificate authorizing Taj TV, a stepping down subsidiary, to pay Rs 2,267 crore to Aqua Holding Investment, a Mauritius-based subsidiary of Sony. This came after the company revealed that it had sold its global sports broadcasting business to Aqua Holdings in a down sale during fiscal 2017.
A contract was signed on 31 August 2016 between Sony Pictures Network India as the buyer and ZEE as the seller.
Since the 2017 progressive play agreement was concluded more than eight months after Sony’s acquisition of the sports broadcaster, IT has argued that ZEE is not a service provider for Taj TV.
Taj TV argued that ZEE provided playback services, while Taj TV India provided specific distribution and advertising services. She said that these are just service providers, and each of them is compensated according to the agreements.
ITAT claimed that the contribution of IT to operating facilities was an afterthought.
“It is noteworthy that ZEE is implementing playback facilities … for many other broadcasters. This is not for this year but for the past several years, ZEE has been providing playstation service,” was the court ruling.
The court held that the tax department also failed to prove that the Indian entity had routinely used its power to enter into contracts, which is a prerequisite for establishing a permanent establishment.